Promotional Tactics Review POS Discounts vs Rebates

Any marketer looking to spike sales looks immediately at discounts for the short-term lift. However, as prices have been driven further and further down – marketers are struggling with how to remain price competitive and achieve sales. One tactic that is being increasingly considered is rebates – but the question is always asked, will I achieve the same promotional effectiveness with a rebate as a sale?

Same store analysis: Discount vs Rebate

In a historical analysis of major retail accounts, cross-category and weighted for seasonality – same store sales based on SKU experienced statistically similar lift for a discount or rebate of 10%, 15% and 20%. When asked, more than 60% of consumers purchase solely based on price point – and there is no preference as to how that price point is achieved, just that the low price is hit. Cross industry, marketers can accept an average sales lift of 50 – 200% sales lift on a rebated product. There are many benefits that running a rebate program can provide you over discounts, from higher per-product revenue, recycled program dollars, database build, marketing touchpoints and brand amelioration.

Higher Per-Product Revenue

The revenue benefits of rebates are three-fold – at the same price point as a discount, you can take advantage of your customer’s natural reservation price and reduce your spend for promotion. Secondly, you can leverage lower cost per promotion, to offer deeper discounts – boosting your sales lift an average of 100% over the lesser discounted price. Thirdly, by providing branded prepaid cards or the choice of gift cards, you can expect to recycle anywhere from 25% – 50% of program dollars back to your store or channel. Let’s look at a quick financial overview of a sample discount promotion:

With a POS Discount, you extend the discounted price to every consumer. As we stated earlier, 60% of consumers purchase solely on price – so this advertised price is critical in driving foot traffic and sales. However, you are extending the discounted purchase price to every consumer, whether they are shopping on price or not. As you can see, with 200,000 units, your total cost of promotion is $4,000,000. Now let’s review the same promotion paradigm with a rebate.

As we discussed before, you can expect the same promotional lift with a rebate as a POS discount. However, on average promotions see about a 60% redemption. This is directly in line with the number of consumers shopping solely on price. If that discounted price is the reason for purchase, than the rebate will be redeemed. If price is secondary to things like brand, features and design, then it becomes less important to the consumer to redeem their rebate. On a similar promotion, one run with a POS discount and the other run with a rebate – the rebate program cost $1,600,000 less – and average savings of $8 per unit. And this is not factoring in the recycled program dollars and add-on marketing benefits.

Increasing offer value

Many marketers leverage rebates to drive their discount prices lower, with the added savings. This results in even more sales lift. Based on more than 100 million transactions, we have analyzed average rebate redemption rates and their comparable discounts. As you can see in the graph below, consumers always prefer the greater rebate value – in some cases 2x.

Recycling Program Dollars

Within a rebate program, you need to issue a cash or cash equivalent to achieve the net price advertising. Many marketers have switched from issuing checks to issuing prepaid cards. These cards, same as cash or checks, are branded and trackable. Prepaid cards, fully branded with company and product messaging provide excellent brand extension and in 1 out of every two cases causes the customer to return quickly to your store or channel partner for repeat purchases. These cards can be used as cash at all Visa/MC acceptance locations – but customers demonstrate tremendous affinity and engagement, returning to spend an average of 25 – 50% of issued dollars at your locations.

Marketing Touchpoints and Brand

A rebate program provides a host of touchpoints that the smart marketer leverages – whether branding and merchandising of the submission website, the status emails, text messages, reward vehicle and more – these critical touchpoints deliver great opportunities to turn a new customer into a loyal one. Whether you can cross-promote or drive return traffic with a special offer or message – many of our customers drive tremendous add-on marketing results from this exposure. Additionally, the rebate process provides a valuable interaction to achieve other marketing objectives – product registration, customer satisfaction survey or opt-in collection. Which brings us to another benefit of rebates….

Build Your Database

70% of consumers in the rebate process will opt-in for future promotions and relevant marketing. They will give you their preferences, permission and information. We are the number one provider of opt-in email addresses to the majority of our clients. A rebate will naturally provide you with shopping preferences and information, and consumers are willing to raise their hand for additional information. Rebates are a valuable marketing tool that can achieve the same promotional results of a discount promotion, with a number of additional strategic marketing benefits. Rebates are a critical part of today’s marketers arsenal.